Powering Growth

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The impressive rate of growth in the South African economy over recent years has resulted in the country moving from a net long position on oil to a net short position in the space of five years. Thus, plans for a new oil pipeline from Durban to Gauteng have come at the right time.

Responsible for generating some 38% of South Africa's GDP - or 9% of the economic output of the entire continent of Africa - Gauteng is the centre of South Africa's economy. However, the province is currently linked to the port of Durban by just one oil pipeline with a capacity of 3.45bn litres a year.

South Africa's state pipeline operator Petronet is reported to be in final discussions with the government over plans for a new pipeline, with construction due to commence next year and with a scheduled completion date of 2010.

In December 2005, the weaknesses in South Africa's logistical oil infrastructure were revealed as both substandard jet fuel from Chevron's Cape Town refinery was released and a record month for consumption combined to cause a sudden fuel shortage. These events occurred just as South Africans were either hitting the road or taking to the skies for their annual summer holidays.

Although the hiccup appeared to be a result of a series of unfortunate incidents all taking place at once, it highlighted the supply problems currently facing the country, especially at a time when it is working on a transition to cleaner fuels.

Oil companies are hoping that the government is close to a decision on a year-long feasibility study which has canvassed issues such as whether the pipeline should be anywhere between 40 and 45 cm in width. The difference is significant, as any extra centimetre of width would increase the budget by roughly R394m ($58.28m), with a 40 cm pipeline projected to cost R3bn ($443.97m). The width of the pipeline has been an area of particular contention because many of the oil companies are worried that if it is too narrow it will not provide enough capacity. If the economy continues to grow at its current rate of 5% or more, the pipeline will have to be wide enough to ensure that oil supply keeps pace with demand for many years to come.

The shortfall in reserves also highlighted wider issues regarding energy consumption in South Africa. Domestic oil production accounts for only 8% of the country's total consumption in a rapidly expanding economy. Although further exploration is underway, South Africa's current dependence on imported energy leaves the economy vulnerable to international oil shocks.

Meanwhile, while the growing numbers of cars on the road is stretching oil supply, the present expansion in construction and industrial output is simultaneously increasing the demand for electricity. Under the government's Accelerated and Shared Growth Initiative-South Africa, increased capacity is expected to come from a massive boost to capacity from the state's electricity supplier Eskom, with the government pumping R84bn ($12.43bn) into the company over the next five years to increase output and distribution.

The investment is badly needed if the power supply is to keep pace with current and projected growth in the economy. Power outages have become a daily occurrence in many of South Africa's towns and cities, with many municipalities having to freeze new residential construction in some areas simply because the power grid is unable to cope.

The start of 2006 saw serious power outages after a loose 8 cm bolt in the rotor at the Koeberg nuclear power station forced managers to temporarily shut the plant down. With outages being experienced all across the Western Cape, the Cape Town Chamber of Commerce believes that the cuts have cost regional trade and industry some R5.6bn ($828.65m) so far in 2006.

The money is available to fix these problems, but unfortunately the skills might not be. According to a 2005 report from the Institution of Civil Engineers, South Africa will need between 3000 and 6000 more civil engineers, technical experts and technicians for all of the infrastructure projects that are planned. Even with a concerted effort to improve training and to tempt South African expatriates to return, this will almost certainly require a degree of skills importation and, with a shortage of skills worldwide, this probably will not come cheap.

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